Allied World Assurance Holdings Ltd.'s net income for the second quarter of 2004 dropped 5.9 percent to $69.4 million after recording $5.6 million in realised investment losses.

But AWAC's operating income - before realised investment losses or gains - rose 16 percent to $76.2 million for the three months to June 30, compared to $65.5 million for the second quarter last year.

Operating income for the six months ending June 30, 2004 was $152.6 million, compared to $117.4 million for the first half of 2003, a 30 percent increase.

Many reinsurance companies - which invest in fixed income securities like bonds - have been hit by declining bond prices as interest rates have risen.

AWAC's $5.6 million in net realised losses compared $7.8 million in net realized investment gains the second quarter of 2003. The company said net income for the six months to June 30, 2004 increased to $158.8 million, including $5 million of net realised investment gains. For the same period in 2003, net income was $129.6 million, which included $11.9 million of net realised gains.

Gross premiums written grew to $482.6 million in the second quarter 2004, an eight percent increase compared to $445.7 million in the second quarter of 2003. For the six months ending June 30, 2004, gross premiums written totalled $982.4 million, a 17 percent increase over gross premiums written of $839.1 million in the same period last year.

Net premiums written for the second quarter 2004 were $353.6 million, a 9% decrease from the second quarter 2003 of $390.3 million.

AWAC said the decrease stemmed from the timing of the purchase of catastrophe reinsurance for its property business, which moved from the third quarter in 2003 to the second quarter in 2004, and from the effect of the increase in the purchase of general reinsurance, which commenced in the third quarter of 2003.

AWAC president and chief executive officer Scott Carmilani said: “We are pleased to report solid growth in gross premiums written in the second quarter 2004 compared to 2003.

Year to date, our gross premiums written have grown by 17 percent over 2003. Our operating income is up 30 percent year over year. The company continues to produce outstanding underwriting results and strong cash flows.

“We are pleased that our strategy since inception to provide quality and service across multiple lines of business to our clients worldwide continues to be proven effective and a differentiator in our markets.”

Net investment income in the second quarter was $29 million, and $23.9 million in the second quarter of 2003. For the six-month period ended June 30, 2004, net investment income was $62.5 million compared to $51.3 million in 2003.

The company's combined ratio for the quarter ended June 30, 2004 was 85.5 percent and for the quarter ended June 30, 2003, was 85 percent. For the six months ended June 30, 2004 and 2003, the combined ratios were 86.2 percent and 86.9 percent, respectively.